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Key amendments to Ukrainian simplified taxation system

On the 20th of October Ukrainian Parliament adopted the Law “On amendments to the tax Code of Ukraine and some other regulatory acts of Ukraine related to simplified system of taxation, accounting and reporting” which significantly amends legal regulation of the simplified system of taxation. We would like to highlight the amendments that in our opinion are the most important. This material shouldn’t be consideres as a comprehensive legal advice.

1. Sole proprietorships “heve been allowed” to work with legal entities. Subsection 139.1.12 of the Tax Code of Ukraine which previously prohibited taxpayers to include expenses for purchase of goods, works and services from sole traders was excluded. But in order to enter into relations with legal entities which are income tax payers a sole trader will have to pay not the fixed amount of single tax but single tax on income. Besides, income tax payers will be obligated to submit the income tax declaration to the body of the State Tax Service of Ukraine along with the list of incomes and expenses from the perspective of counterparties that are represented by single tax payers and include transactions completed with such counterparty.

2. Not everybody will be able to remain under the simplified system of taxation. It will be impossible to become a single tax payer for non-residents (is it some kind of national business protection?), insurance agents, sole trades which perform technical testing and examination (for example automobile repair shops which perform technical examination of a vehicle!), auditors, sole traders which rent land plots with area greater than 0,2 hectares or residential premises with area exceeding 100 square meters (non-residential ones with area exceeding 300 square meters). Also this is applied to all those who have a tax debt as of the day when application for registration as a single tax payer is submitted. Fixed tax is liquidated. Temporary certificate is not provided instead of it.

3. Limits for application of simplified system of taxation will be extended. As of today sole traders can be taxed under this system on condition that our annual income is 500000 UAH and legal entities – on condition if their income does not exceed 1 million UAH. In practice these amounts of annual incomes have been unsuitable for those taxed under simplified system of taxation for a long time. From now on the annual income of sole trader taxed under the simplified system of taxation can be 3 million UAH and 5 million UAH for legal entities.

4. Entrepreneurs taxed under simplified system of taxation of Ukraine were divided into four groups. If now there exist basically two categories of single tax payers (sole traders and legal entities) this number will be extended to four. At the same time the division will be performed only regarding sole traders which will be divided in 3 groups. The first group will include sole traders with insignificant income (lower than 150000 UAH), do not have employees, retail goods on markets and/ or render household services to individuals. The second group will include those with income of up to 1 million UAH, which have less than 10 employees, produce and/or sell goods, render services to single tax payers or individuals. The third group is comprised of all other sole traders including those which have relations with enterprises that pay income tax, which have 10 employees at most and annual income not greater than 3 million UAH. The third group is comprised of legal entities.

5. Minimal rates of single tax for sole traders will be increased while becoming lesser for legal entities. As of today sole traders are obligated to pay from 8,6 to 86 UAH of single tax after exclusion of social contributions from the tax which comprised 57 % of it. From now on sole traders which belong to the first group will pay 1 to 10% of minimum wage (currently it equals from 9,85 to 98,5 UAH). Second group of sole traders – 2 to 20% of minimum wage (19,7 to 197 UAH). Thus, taking into consideration the single social contribution which cannot be less than a minimum one (as of today it equals to 328,60 UAH) the real tax burden on sole proprietorships will be increased. At the same time increase of minimum wage will result in increase of single tax.

Sole proprietorships and legal entities will pay single tax at rate of 3% of income (if VAT is not included) or 5% (if VAT is included). Previously these rates were 6% and 10% of income respectively.

6. Single tax is not so “single”. Increase of tax burden for some single tax payers will be reached by means of exclusion of taxes from the list which are not paid by single tax payers of payment for use of subsoil, fee for special use of water, fee for special use of forest resources. Users of natural recourses will have to perform accounting of these taxes separately.

This material was prepared by Kiev law office “Pravova Dopomoga” within Taxation practice.

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